Software costs and revenue recognition in the age of AI

Software and software-as-a-service (SaaS) companies are navigating accounting questions as AI technologies become part of their products and development processes. We discuss how companies can apply existing accounting guidance to new revenue recognition questions involving software licenses, SaaS, AI-enabled services, and commercial arrangements. Our guests also discuss capitalizing and classifying software development costs.

Key topics and timestamps

• 1:47 — Software licenses versus software-as-a-service
• 8:36 — AI-enabled services and revenue recognition
• 15:37 — Reseller arrangements and principal versus agent considerations
• 19:50 — Customer-vendor arrangements and consideration payable to a customer
• 23:56 — Minimum spend commitments and performance obligations
• 28:00 — AI costs and software capitalization

Additional resources

For more information see our publications:

• Accounting for the cost of AI tools used in software development
• Revenue recognition: A Q&A guide for software and SaaS entities
• Software costs guide

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About our guests

Angela Fergason is a partner in PwC's National Office. Her areas of specialty include revenue recognition, accounting for employee compensation arrangements, and other accounting and reporting issues impacting the technology industry. Angela is also PwC's standard setting leader, managing PwC's participation in the accounting standard setting process. 

Mike Coleman is a partner in PwC's National Office who specializes in accounting for revenue and software arrangements and has served technology clients for much of his career. In addition, Mike has represented the firm on the AICPA Software Task Force.

About our guest host

Pat Durbin is a PwC National Office Deputy Chief Accountant. He has over 30 years of experience consulting with our clients and engagement teams on complex accounting matters, including issues related to revenue, compensation, income taxes, and inventory under both US GAAP and IFRS.

Transcripts

Transcripts available upon request for individuals who may need a disability-related accommodation. Please send requests to [email protected]. 

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